With tax implications that can be significant, getting worker classification right as a dental practice owner, is a big deal.
If you’re new to operating a business in the dental industry, you can be forgiven for not knowing the in’s and outs of worker classification, but it is very important that as a practice owner with employees, you do your best to get it right; don’t, and you could face stiff penalties from the IRS.
Even for dental contractors tax planning purposes, knowing how you should file your taxes as a result of your classification, is important.
To get worker classification right at tax time as a dental practitioner, here is a basic guide (for more detailed guidance, consult with a dental tax expert):
1099 independent contractors and W-2 employees – what is the difference?
A traditional relationship exists for W-2 employees between employer and employee, with taxes withheld by the employer. They are able to receive certain benefits, including paid unemployment and time off, and are protected under labor laws.
1099 independent contractors handle their own taxes, and have a relationship that is contractual. They also pay for their own supplies, CE courses and liability insurance. Their work arrangements are flexible, and they don’t have access to traditional unemployment benefits.
How should independent contractors file their taxes?
For dental assistants and hygienists working as independent contractors, they should put a minimum of 30% of their income to one side for taxes, and make a quarterly tax payment directly to the IRS, on or before the due date.
What are the obligations and risks of classifying temporary assistants and hygienists as independent contractors?
It’s advisable for dental practices to not hire hygienists and assistants on a temporary basis as independent contractors, and add them as payroll employees instead. Due to the nature of their work, even if all the necessary documentation can be provided, most practices will fail an IRS audit.
Is it risky to use a third party to pay an independent contractor?
In short, yes. It would still come down to having the appropriate documentation to prove that a contractor wasn’t an employee taking direction from practice management.
What else is worth keeping in mind when classifying assistants or hygienists as contractors?
While there’s no doubt that classifying these people as contractors creates more work, there’s also no doubt that it will create suspicion from the IRS and put practices at an increased risk of an audit. What practices can do instead, is work with a company who can classify temporary professionals as a W-2 employee.
Where can practice owners find more information about laws surrounding labor and taxes?
The IRS website has all the information practices need with respect to contractors and their classification, and it’s important to remember that every state takes a different stance on the matter.
Working with an experienced accountant for dentist can also help practice owners correctly classify all workers, alleviating the responsibility and worry of misclassification and its potentially costly consequences.
Consulting with a dental accounting and tax service in your state will ensure that you always get the latest information regarding tax laws and regulations, and can correctly classify everyone who works at your practice.
